CSX sweetens bid for Conrail, despite still-richer hostile offer
PHILADELPHIA (AP) _ Looking to dissuade shareholders from siding with a higher offer from rival suitor Norfolk Southern Corp., CSX Corp. has added $870 million to its bid for Conrail Inc.
Conrail embraced the new $9.35 billion cash-and-stock offer, which was announced Thursday. Norfolk, meanwhile, remained firm in its desire to win the bidding and create the nation’s No. 3 freight carrier. Norfolk Southern is offering $10 billion in cash.
Shareholder discontent at the lower CSX bid had created a threat to approval of the next step in the merger. A vote on the old offer was to have been held Monday, but Conrail has pushed that back to Jan. 17.
``It’s too early to call. This is in some ways a cliffhanger,″ said John Spychalski, a professor of business logistics at Penn State University. It’s now possible, he said, that Norfolk Southern will raise its bid.
Norfolk Southern said it would study CSX’s new offer but made no predictions about a higher offer.
The merger agreement between CSX and Conrail is complex. CSX already has bought about 20 percent of Conrail’s shares for $110 each in cash. It needs shareholder approval to purchase the next 20 percent for the same amount, which will come up at the January vote.
The final 60 percent, known as the ``back end″ of the transaction, will be for CSX stock and that is the portion increased today.
CSX had proposed buying the remaining stock in an exchange of 1.85619 shares of CSX common for each Conrail share. That is worth $81.21 a share, or about $4.46 billion. The additional $870 million is preferred stock, worth about $16 a share, to be paid to Conrail shareholders.
The cash portion of the deal is worth about $4.03 billion. That makes the entire merger offer now worth about $102 a share, still lower than Norfolk Southern’s $110 a share bid.
``In every respect, this merger holds great potential and clearly offers the best possible result for Conrail,″ David M. LeVan, Conrail’s chairman, said in a statement. ``This amendment to the merger agreement reaffirms the decision of the Conrail board that it is not willing to agree to the sale of Conrail to Norfolk Southern.″
Norfolk Southern characterized the new offer as an apparent ``11th-hour attempt to avoid defeat at the shareholders’ meeting that had been scheduled for December 23.″
``There should be no doubt that Norfolk Southern remains as determined as ever to acquire Conrail and will use any and all appropriate financial means to accomplish that objective,″ the railroad company said in a statement.
On a day when stocks were surging higher, Wall Street sent CSX shares down $1.50 each to $43.75 on the news. Conrail shares gained $1.75 to close at $100.75 on the New York Stock Exchange, and Norfolk Southern stock gained $2.12 1/2 to $88.37 1/2.
Aside from its sheer dollar value, the stakes are high in this three-way battle. A merger with either CSX, based in Richmond, Va., or Norfolk Southern, which is based in Norfolk, Va., would create a railroad with track extending across the Eastern United States and into Canada.
Despite the lower value, Conrail insists the CSX deal is a better strategic fit and holds a better future for its employees and the communities it serves. Under the revised agreement, Conrail may not discuss or agree to any rival takeover proposal through Dec. 31, 1998.
The U.S. government set up Conrail in 1973 to take over the operations of Penn Central and five other failed Northeast railroads.
Conrail, based in Philadelphia, began operations in 1976 and became a publicly traded company in 1987, when the federal government sold the railroad in a public stock offering. It operates an 11,000-mile rail freight network in 12 northeastern and Midwestern states and the District of Columbia and Quebec.
CSX operates more than 18,000 miles of track running through 20 states in the East, Midwest, South and in Ontario. The rail business accounted for nearly half of its revenue last year. Norfolk Southern operates a 14,500-mile rail system in 20 states and Canada, as well as a trucking company.